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Friday, January 30, 2009

Thursday (02/29/09) brought a hat trick of grim economic news: New-home sales fell to their slowest pace on record, businesses cut their orders and jobless claims continued to rise.

Taken together, the three reports released by the government painted a picture of an economy that continued to slide as falling consumer spending and rising unemployment amplified the effects of a yearlong recession.

The Commerce Department reported that American businesses ordered fewer durable goods like computers, construction equipment and vehicles in December, cutting the prospects for growth as companies braced for a difficult 2009.

Orders of durable goods fell 2.6 percent last month, to $176.8 billion. It was the fifth consecutive month of declines, after a 3.7 percent drop in November as the country slipped deeper into a recession now nearly 13 months old.

For all of 2008, orders fell 5.7 percent, a decline topped only by a 10.7 percent drop in 2001.

“This is pretty much what you expect when the economy is in the process of shrinking and businesses don’t see any need to purchase any capital goods,” said Bernard Baumohl, managing director of the Economic Outlook Group. “Even if you did want to increase your capital investments, it’s going to be difficult to get the capital to purchase this.”

Orders for computers and electronic goods dropped by 7.2 percent in December, and factory orders for metals, machinery, transportation equipment and communications equipment slumped as businesses cut their outlooks.

Shipment of goods also fell for a fifth month, declining 0.7 percent.

“The data show clear declines in sectors as diverse as cars, computers, metals and machinery,” Ian C. Shepherdson, chief United States economist at High Frequency Economics, wrote in a note. “The industrial recession is deep and broad, and there’s no prospect of any easing of the downward pressure anytime soon.”

As businesses struggled, the problems of the housing market continued to multiply. The Commerce Department reported that sales of new single-family homes in December fell 14.7 percent to an annual rate of 331,000, a record low.

In all, 482,000 new homes were sold last year as housing prices tumbled and credit dried up. That figure was 37.8 percent lower than the 776,000 homes sold a year earlier.

Also on Thursday, the Labor Department reported that first-time unemployment claims rose to a seasonally adjusted 588,000 for the week that ended Jan. 24, up 3,000 from a revised 585,000 for the week before.

Employers had long resisted making mass layoffs as the economy cooled, seeking instead to cut costs through shorter work weeks, pay cuts and hiring freezes, but they are now cutting jobs by the thousands.

The national unemployment rate has risen to 7.2 percent since the economy slipped into recession last December, and the jobless rates in Michigan and Rhode Island have already reached 10 percent. Some economists expect that the national unemployment rate will rise to 9 percent before the economy gets back on track.